Global tax deal taking shape

Negotiators hammering out details of a transformative new global corporate tax regime are shaping the deal to maximize its chance of winning acceptance in the US, whose companies face the biggest impact from the overhaul.

US Treasury officials and the Organization for Economic Cooperation and Development, which brokered October’s agreement among almost 140 nations, see two fundamental ways of broadening support in a politically divided Washington – technical tweaks to ensure the US doesn’t lose revenue, and an appeal to corporate lobbies that it’s a less-bad option than going without a global pact.

A key plank of the plan is a controversial move to create new rights for governments around the world to tax a group of about 100 companies, almost half of which are American. It would require some form of backing in Congress, where President Joe Biden faces opposition from Republicans.

Failing US approval, the entire agreement would collapse, undermining public finances on both sides of the Atlantic and reigniting unilateral measures and trade tensions that have made life difficult for multinationals. A rare triumph for multilateral diplomacy in recent years would also be obliterated.

“We’re not completely stupid – so we created a mechanism so that US ratification is a no-brainer,” Pascal Saint-Amans, the OECD’s top tax official, said on Wednesday at a briefing of France’s economic journalist association AJEF. “There’s a serious chance of success.”

The October accord featured a global minimum tax of 15% and an agreement allowing a share of profits earned by multinational giants to be taxed based on where they generate revenue.
Global Corporate-Tax Deal

Leaders want the first-in-a-century overhaul of international corporate taxes implemented in 2023. To meet that timeline, the text of the final deal needs to be ready in the spring of 2022, in advance of a multilateral convention by the end of June, according to the Paris-based OECD.

Technical talks have only recently started. One focus is how to deliver the October agreement’s promise to reallocate profits so that they’re taxed in places where companies actually operate.

The more that those reallocated profits are taken from tax havens rather than a company’s home nation, the less Washington has to lose.

All the options currently under serious consideration would be very close to revenue-neutral for Washington, according to a senior US Treasury official, who spoke on condition of anonymity because details of the talks aren’t public.

Saint-Amans said he expects there will be some middle ground between reallocating entirely from tax havens or entirely from the headquarter countries. He also pointed out that Washington would win new taxing rights with regard to 50 or 60 foreign multinational firms that operate in the US.

“There is even a possibility that it is fiscally favorable,” Saint-Amans said.

The second key approach is delivering on Treasury Secretary Janet Yellen’s prediction earlier this year that corporate leaders will swing round to pushing Congress to approve the deal.

The argument revolves on showcasing how the alternative to the agreement would be far worse for multinationals. That means not only the return of digital-services taxes imposed on the likes of Amazon.com Inc, but a host of unilateral measures intended to capture revenue from companies that increasingly have shifted profits to tax havens.

Jacob Kirkegaard, a senior fellow based in Brussels at the German Marshall Fund, said that’s a powerful argument, not because businesses like the new agreement, but because the international landscape has been tipping toward chaos for years.

Companies “want an open trading system that has a degree of predictability,” Kirkegaard said. “They may not like a 15% tax, but they understand that the status quo is not on offer. The alternative is infinitely worse.”

The US Chamber of Commerce, one of the country’s largest lobbying groups, says it doesn’t have enough details to decide whether to back or oppose the tax reallocation component of the new tax regime – known as Pillar One.
Corporate Reaction

“There is a possibility that Pillar One could be an improvement over the hodge-podge system we have right now,” said Curtis Dubay, the chamber’s senior economist. “But if the details are such that it substantially raises taxes on US business, is targeted at US business and is bad for our economy, we will strenuously oppose it.”

The OECD deal is drafted to apply only to 45 or 50 US companies, limiting its effect.

“In terms of lobbying at the Senate, you have taken away 7,000 to 8,000 companies – and that has a big impact,” said Saint-Amans at the OECD.

Technology-sector trade groups, including the Information Technology Industry Council and the Computer and Communications Industry Association, have praised the agreement – especially its elimination of digital-service taxes. Amazon issued a statement welcoming the “consensus-based solution for international tax harmonization.”

Looking at the landscape in Washington, Saint-Amans said, “You might say the probability of the US Senate ratifying a multilateral convention – based on the track record – is close to zero. In reality, and I’m not just saying that because I’m paid to, the chances of a ratification by the Senate are not 100%, but they are well above zero.”


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Global tax deal taking shape